San Francisco Planning Director John Rahaim has one request: Don't call it a beauty contest.

For the first time in nearly 15 years, San Francisco's most powerful commercial developers are gearing up to face off in a competition to win the approvals needed to construct the city's next generation of office buildings.

The problem is that while there is no shortage of demand at the moment - companies like Google, LinkedIn, Dropbox and Pinterest seem to have an insatiable appetite for expansion space - developers are bumping up against Proposition M, a 1986 San Francisco voter-approved law that caps the amount of new office space allowed at 875,000 square feet per year.

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The law was passed to temper an office development explosion in the mid-1980s. During periods of modest growth the space bank can grow - the amount available under the cap typically swells to 4 million or 5 million square feet in down markets - but becomes a factor during boom times like the dot-com bubble of 1999 and the current tech explosion.

Right now the San Francisco Planning Department is inundated with proposals like never before: 10 million square feet of tech-friendly space that would transform the look and feel of SoMa corridors along central sections of Townsend, Brannan, Bryant and Harrison streets. That amount of space - roughly three Embarcadero Centers or 20 Transamerica Pyramids - is five times more than the 1.9 million square feet currently available for allocation under the Prop. M cap.

On Aug. 7 planning staff members will ask the Planning Commission to begin formulating a policy for judging these office projects. In past Prop. M competitions, consultants, including architects and architecture critics, had influenced the commission's decisions. This time, the staff will likely recommend that commissioners establish more objective criteria. A project could earn points for being within a five-minute walk to major transit or for not displacing any businesses or jobs, for example.

Rahaim will urge the commission against basing decisions on aesthetics. Among planning staff members, "the use of the term 'beauty contest,' it's ground for dismissal," he joked.

The high volume of the proposed buildings pouring in is being driven by the city's current rezoning of Central SoMa, an effort to create space for jobs along the Central Subway project, which will link the Caltrain Station at Fourth and King streets to Chinatown. A new Central SoMa plan is likely to be up for approval in a year and sets aside parcels larger than 25,000 square feet for office buildings.

"We feel like we have a lot of capacity for residential growth in the city but less for office," Rahaim said. "That is the purpose of the plan."

Rahaim said the department is letting developers know that Prop. M will be a factor.

"We are not discouraging new office applications, but we are letting people know it's not just first come, first serve anymore," he said. "It's only fair that we look at these projects as a whole."

The looming cap crunch is already sending developers back to the drawing board on major SoMa projects. At Fourth and Townsend, Tishman Speyer is proposing to build upward of 1,000 housing units on a property that is home to two restaurants, the Creamery and Iron Cactus, as well as the furniture showroom HD Buttercup.

Developers hedge their bets

It's right across from a Caltrain station and would have been a natural for a huge office project, maybe as much as 1 million square feet. But the developer, which built such office towers as 222 Second St. and 555 Mission St., already has a proposed 700,000-square-foot project at 598 Brannan St. Given the cap and the amount of competition, Tishman is betting that that the Planning Commission is not going to approve two office projects from one builder.

At 330 Townsend St., the CIM Group is hedging its bets: It has filed preliminary applications for two projects - one dominated by residential and one by office.

"I definitely think the cap is pushing some developers to lobby for more residential (in their plans)," said Supervisor Jane Kim, who represents SoMa. "They are worried that once we hit that cap they won't be able to build anything."

Kim said she supports "a greater balance of office and residential" than was originally contemplated in the Central SoMa plan. She said she will push to make sure 30 percent of the housing built in the neighborhood is affordable as well as support provisions to protect existing tenants who can't afford the high - up to $65 a square foot - rents charged in SoMa.

"We are interested in the concept of how we ensure there is space for nonprofits and small businesses that can't compete with office," she said.

Matt Field, chief investment officer with developer TMG Partners, which has about 1.3 million square feet of office space in the pipeline, said uncertainties about how the Prop. M cap will be handled are "creating imbalance in the market" and making it difficult to price land.

"One of the challenges is figuring out: How do you create an objective set of standards, rather than subjective standards?" Field said.

Supply and demand

While Prop. M is primarily an issue for builders, it also affects tenants across the city. Colin Yasukochi, research director for the brokerage CBRE, said the cap is exacerbating the tech space crunch and driving up average commercials rents. San Francisco's commercial vacancy rate is less than 10 percent, and few properties are available that could meet the needs of a 100,000-square-foot user.

"We are faced with a supply problem," he said. "There are more businesses that need expansion space than there is space available. It's not a healthy phenomenon in terms of a more sustainable growth trajectory. ... The end result could be longtime San Francisco businesses relocating out of the city."

Gabriel Metcalf, executive director of the pro-growth urban think tank Spur, said Prop. M makes it more expensive for everyone to do business in the city.

"Because of the growth cap, we are about to see office rents go through the stratosphere," Metcalf said. "The attempt to slow growth and manage the skyline is backfiring by causing rent hikes and displacement, but in this case it's nonprofits, rather than residents."

Purpose of Prop. M cap

Sue Hestor, attorney for San Franciscans for Reasonable Growth, the organization behind Prop. M, said the cap was meant to make sure there was adequate transit and affordable housing to support new jobs. That investment is not being made, driving up housing costs and "ripping the soul out of the city," she said. "We can do 1 million square feet of office, but we can't do it if there is no investment in transit or housing."

John Elberling, who runs SoMa affordable housing developer Todco, said the situation reminds him of the time before the dot-com bust of 1999.

"We don't know how long this bubble will last, but we know what happened to the last one. It tanked hard," he said. "There is always way too much optimism about demand when you are in a boom - everyone acts as if it will go on forever. There is always the correction."